RaeAnn Smith

SUMMARY ORDER - 1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF IDAHO
______________________________________________________
In Re:
Bankruptcy Case
RAEANN SMITH, 	No. 05-01481
Debtor.
______________________________________________________
SUMMARY ORDER DENYING
OBJECTION TO CLAIM
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Chapter 13 Debtor RaeAnn Smith objected to allowance of the proof
of claim the Internal Revenue Service (“IRS”) filed in this case for taxes, penalties
and other amounts for tax years 2000, 2001, 2002, 2003 and 2004 totaling
$33,876.22. Proof of Claim No. 11, Ex. C; Am. Obj., Docket No. 31. While
Debtor admits liability for income taxes attributable to her earnings from
employment, she contends she is not liable for any taxes assessed on her
husband’s self-employment income. Mem. at 1, Docket No. 33. Because Idaho is
a community property state, Debtor argues 26 U.S.C. § 1402(a)(5) operates to
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SUMMARY ORDER - 2
render only Mr. Smith liable for taxes assessed on his self-employment income.
Therefore, Debtor contends that to the extent IRS’s claim includes taxes, penalties
and additions to tax attributable to Mr. Smith’s self-employment income, that
portion of its claim should be disallowed.
IRS contends 26 U.S.C. § 6013 renders each spouse jointly and
severally liable for the entire amount of the tax when a joint tax return is filed.
Mem. at 3, Docket No. 35. Because Debtor and her husband filed joint tax returns
for the years in question, see Ex. B, IRS argues Debtor is liable to pay the entire
amount of its claim, which includes taxes, penalties and additions to tax
attributable to Mr. Smith’s self-employment income. IRS also contends it did not
receive proper notice of Debtor’s objection to its claim under Fed. R. Bankr. P.
7004(b)(4) and (b)(5). Response at 1, Docket No. 30.
The Court conducted a hearing concerning Debtor’s objection on
October 11, 2005. At its conclusion, the parties were granted additional time to
file written briefs. The issues were then deemed under advisement. Docket No.
34. Since Debtor does not challenge the way in which IRS has computed its
claim, the issue presented is purely a matter of law. After considering the parties’
arguments and the authorities relied upon by each, the Court concludes Debtor’s
objection should be denied.
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SUMMARY ORDER - 3
26 U.S.C. § 6013(d)(3) explains the consequences of filing a joint
income tax return. It provides that “if a joint return is made, the tax shall be
computed on the aggregate income and the liability with respect to the tax shall be
joint and several.” 26 U.S.C. § 6013(d)(3). Taxes imposed upon self-employment
income under 26 U.S.C. § 1401 are included within the scope of 26 U.S.C. § 6013.
Travers v. Comm’r, 43 T.C.M. (CCH) 603 (1982). For the tax years in question,
Debtor and her husband filed joint tax returns reporting the self-employment
income Debtor’s husband earned. Ex. B. As a result, by operation of 26 U.S.C.
§ 6013(d)(3), Debtor is obligated to pay the taxes on all income reported on those
joint returns, even those taxes attributable to her husband’s self-employment
income. Travers, 43 T.C.M. at 603 (finding wife jointly and severally liable as a
matter of law for taxes attributable to her husband’s self-employment income
reported on their joint tax return).
The statutes and cases Debtor cites are of no help to her. 26 U.S.C.
§ 1402(a) is a definition section, defining the term “net earnings from self-
employment” and explaining the method for “computing such gross income and
deductions . . . .” 26 U.S.C. § 1402(a)(5) then explains how, in a community
property state, income attributable to self-employment should be allocated among
the spouses for purposes of computing the self-employment taxes owed. In a
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1 Because it concludes Debtor’s objection should be denied on the merits, the
Court need not reach IRS’s challenge to the adequacy of service of Debtor’s objection to
IRS’s claim.
SUMMARY ORDER - 4
community property state, the gross income and deductions corresponding to the
trade or business is treated as the income of the spouse carrying on the business
for tax computation purposes. See Chang v. Comm’r, 48 T.C.M. (CCH) 99 (1984)
(explaining that, since the wife did not exercise “substantially all of the
management and control” of the business, all income derived from self-
employment was attributed to the husband for purposes of computing the self-
employment taxes owed). In other words, 26 U.S.C. § 1402(a) simply does not
deal with who is responsible to pay taxes owed for self-employment income.
The reasoning and holding in Heidig v. Comm’r, 52 T.C.M. (CCH)
360 (1986), which Debtor cited, is also inapplicable. In that case, the IRS’s claim
for taxes and other charges was “not based upon a joint return or joint and several
liability.” Here, IRS specifically claims the taxes and other charges are based on
Debtor’s joint returns. 1
For these reasons, and for other good cause, IT IS HEREBY
ORDERED THAT Debtor’s Amended Objection to IRS Proof of Claim, Docket
No. 31, be and is hereby OVERRULED, and said claim be and is hereby
ALLOWED.
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SUMMARY ORDER - 5
Dated: October 25, 2005
Honorable Jim D. Pappas
United States Bankruptcy Judge
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